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FTSE breaches 5,700 as Geithner and Schaeuble reassure markets about a euro solution

FTSE breaches 5,700 as Geithner and Schaeuble reassure markets about a euro solution

16.30: The FTSE 100 broke through 5,700 after the US and German finance ministers expressed confidence that eurozone members would take the necessary action to resolve the debt crisis.

Approaching close the UK’s blue chip index had advanced 78 points or 1.4% to hit 5,705, with similar gains in Europe.

After a hesitant start following big gains at the end of last week, markets today resumed their rally after US Treasury Secretary Timothy Geithner and German Finance Minister Wolfgang Schaeuble (pictured) issued a statement after talks on the German North Sea island of Sylt, where Schaeuble is on holiday.

The pair praised the efforts of Ireland and Portugal to stabilise their public finances and cited recent structural reforms by Spain and Italy.

‘[The two men] emphasised the need for ongoing international cooperation and coordination to achieve sustainable public finances, reduce global macroeconomic imbalances and restore growth,’ they said in a statement.

The statement strengthened hopes that the European Central Bank will do something big when it meets on Thursday.

However, David Jones of IG Index expressed widely held scepticism, tweeting: ‘When FTSE was last 5,700+, twice already this month, it didn’t last long. Is this time different?’

The FTSE 100 has recovered 4% or 221 points since ECB president Mario Draghi pledged to do ‘whatever it takes’ to save the euro last Thursday. It has advanced 8.5% since 1 June when it closed at 5,260. As a result of the rally the index is back in positive territory year to date, with a gain of 2% since the new year.

The euro continued to trade lower, down 0.75% to $1.22 against the dollar. US markets stood back from the rally with the Dow Jones industrial average up 25 points or 0.2% at 13,100. The S&P 500 firmed two points to 1,388.

Gold slid 0.3% or $4.33 to $1,618.

British Airways owner International Airlines Group (ICAG.L) flew more than 7% or 11p higher to 162p, followed by the usual flighty crowd of financial and resources stocks such as Evraz (EVRE.L), ENRC (ENRC.L), Aviva (AV.L) and RBS (RBS.L).

Pearson (PSON.L) ended the day as it began as the FTSE’s biggest faller, down 40p or 3.25% at £11.90 after Friday’s warning that the education and Financial Times publisher was finding business tougher than expected.

For more details of today’s main risers and fallers go to our FTSE home page.

14.50: The market continues to be a bit ambivalent over the potential intervention of the European Central Bank.

The Dow Jones industrial average slipped four points to 13,070, while the FTSE 100 extended its advance to 48 points of 0.85% to 5,675.

Earlier today Italy’s 10-year borrowing costs fell below 6% for the first time since April amid hopes that the ECB will buy the bonds of struggling ‘peripheral’ countries.

Benchmark 10-year borrowing costs fell to 5.96% from 6.19% as Italy sold €5.48 billion of bonds at a good price.

Any disappointment following the ECB meeting on Thursday could see Italy’s bond prices fall back and its yields shoot up again.

The mood in Europe is understandably downbeat. Business sentiment measured by the European Commission fell to 87.9 points in July, down from 89.9 in June, its fifth consecutive monthly fall.

Uncertainty over what the authorities will actually do kept Brent crude oil steady at $107 a barrel. Oil has risen recently on hopes of further economic stimulus from the US Federal Reserve and the ECB.

12.00: Markets have stepped on the gas after a hesitant start.

The FTSE 100 has extended its gain to 31 points, up 0.5%, to 5,658. There is a similar picture in Europe with the Euronext 100 up nearly four points or 0.6% to 634. In France the Cac 40 is up 18 points or 0.6% at 3,298, and in Germany the Dax is 52 points, or 0.8%, higher at 6,741.

However, there is some caution over what Mario Draghi will actually deliver at the European Central Bank's meeting on Thursday.

On currency markets the euro has slipped 0.5% to $1.22 against the dollar and 0.3% to 78p versus the pound. Sterling is 0.2% weaker against the dollar.

Gold has weakened 0.2% to $1,619 an ounce.

US futures indicate Wall Street will open slightly lower this afternoon.

10.00: HSBC (HSBA.L) drops back to trade just 3p or 0.5% higher at 594p after its half-year results reveal a mixed bag.

The bank is making a total of $2 billion (£1.3 billion) of provisions, made up of $1.3 billion for mis-selling payment protection insurance and $700 million in relation to its money laundering scandal in the US. Chairman Douglas Flint apologises, and says he and chief executive Stuart Gulliver are prioritising strengthening the bank and reinforcing its values.

Profits before tax are up 11% to $12.7 billion, but this includes profits from businesses it has sold and losses on its own debt that it has to account for. Underlying profits are down 3% to $10.6 billion with operating expenses up as a result of the increased provisions. A second interim dividend of nine cents per share maintains the first half payments at 18 cents per share, unchanged from a year ago.

Other key metrics show return on equity down at 10.5% from 12.3% a year ago, earnings per share down at 45 cents per share and costs absorbing 57.5% of income, still below target. However, core tier 1 ratio – a measure of financial strength – has improved to 11.3% ahead of its target range.

The FTSE 100 trades 16 points higher at 5,643 with the Euronext 100 up 0.4% at 633.

Financials lead FTSE higher on ECB hopes

08.30: The FTSE 100 gains 16 points, or 0.3%, to 5,642 in early trading.

Financials are prominent gainers, with Aviva (AV.L) up 6.3p, or 2.2%, at 292.75p, leading the way on reports it has received bid approaches for its US life insurance business.

Barclays (BARC.L) gains 3.5p, or 2.1%, to 170.5p as the glow from the forecast-beating half-year results on Friday continues. Weekend reports that Gus O'Donnell, former cabinet secretary, has withdrawn from the race to succeed Marcus Agius as chairman may also help the share price as O'Donnell had no banking experience.

Schroders has written to Agius to urge him to use the 'unique opportunity' of the Libor scandal to reduce its dependency on its investment banking Barclays Capital arm, according to the Sunday Times. The fund manager owns just 0.8% of the bank's shares, although its head of UK equities, Richard Buxtons, recently told Citywire he bought more shares for his UK Alpha Plus fund as soon as former chief executive Bob Diamond quit. Analysts at Cannacord Capital on Friday described it as the 'cheapest bank in the world'.

RBS (RBS.L) and HSBC (HSBA.L) advance 1.5% and 1% to 217.8p and 536p respectively despite reports of increased provisions and fines relating to PPI mis-selling and Libor rate-rigging. HSBC, which reports its half-year results shortly, faces a big hit from the money laundering case in the US.

Reckitt Benckiser (RB.L) falls 55p or 1.5% after the consumer goods group publishes half-year results showing earnings 2% higher and an interim dividend raised the same amount to 56p per share.

Pearson (PSON.L) drops another 26p or 2.1% to £12.03 in response to the publisher's half-year results on friday.

What will Mario do?

07.55: The FTSE 100 is set for a third day of gains as investors continue to wait to see what the European Central Bank will deliver. The UK's blue chip index closed 54 points, or 1%, higher at 5,627 on Friday on hopes that ECB president Draghi's pledge on Thursday 'to do whatever it takes' to defend the euro.

Over the weekend the German and French leaders Angela Merkel and François Hollande spoke of their 'duty' to preserve the single currency.

The ECB is due to meet on Thursday and speculation is growing over whether the central bank will announce a further cut in interest rates, a revival of bond purchases or a new form of loan support for troubled banks.

However, there is a danger that the central banks disappoint investor expectations and markets fall.

Read Chris Marshall's Week Ahead on all the options.

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